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September 21, 2016

My last update on Sept 8 2016 (Saving taxes through payroll) briefly touched on the timing differences between estimated quarterly taxes and withholding through payroll. This week I will extend and elaborate upon the concept of estimated taxes, in particular how higher income taxpayers can ballpark their 2016 taxes and avoid underpayment penalties and interest.


IRS Publication 505 provides guidance for taxpayers regarding estimated taxes and withholding. The following excerpts intr...

September 8, 2016

Last week I explained how self-employment taxes and payroll taxes are two sides of the same coin. This week, I will illustrate how a self-employed individual can benefit from being on payroll.


Let's take a closer look at how payroll can reduce excessive taxation:

1. Assuming no other data, $100,000 of business income for a self-employed individual (filing single in 2015) will result in $30,580 of tax.

2. Of this $30,580 in taxes, nearly half ($14,130) is in the form of self-employment tax...

September 2, 2016

W-2 employees don't pay self-employment taxes. Or do they?


As an employee, 6.2% of every dollar earned is withheld for Social Security, and an additional 1.45% is withheld for Medicare. 

The employer pays the same amount, so that the total amount of Social Security and Medicare taxes withheld is:

= (6.2% + 1.45%) + (6.2% + 1.45%)

= 15.3%

Therefore, on $100,000 of W-2 wages paid by an employer to an employee, $15,300 is paid to the IRS in the form of payroll taxes.

[$100,000 x 15.3% = $1...

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